MOMO CROWD STOCK MARKET NIRVANA OF COOLING INFLATION AND NO RECESSION CONTRADICTED BY IMPORT DATA

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Contradiction

Please click here for a chart of Industrial Select Sector SPDR Fund (XLI).

Note the following:

  • As the momo crowd in the stock market feels the nirvana of cooling inflation, no recession belief, and expanding breadth of the rally, import data strongly contradicts the bullish beliefs.  However, right now, the momo crowd is oblivious and buying stocks.  Prudent investors are paying attention to the import data.
  • The chart shows that industrials have broken out.  Industrials are very sensitive to the economy and get hurt in a recession.
  • The fact that industrials have broken out shows that the predominant belief of stock market investors is that there will be no recession.
  • The data from China directly contradicts the conclusion of stock market bulls in the U.S. that there will be no recession.
    • The U.S. is a major importer of Chinese goods.  In the case of many goods, there are no reasonable alternatives to China.
    • Chinese exports to the U.S. dropped about 24%.  This is the worst number since March 2020.
    • The data from China shows that consumers’ buying of goods in the U.S. is definitely slowing.
  • Producer Price Index (PPI) came cooler than expected.   Here are the details:
    • Headline PPI came at 0.1% vs. 0.2% consensus.
    • Core PPI came at 0.1% vs. 0.2% consensus.
  • Jobless claims came at 237K vs. 247K consensus.  This is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories.  The model has a great track record in both bull and bear markets.
  • On a bullish note, the rally is expanding beyond the AI frenzy driven rally in the magnificent seven stocks.  The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
  • Earnings season has started.  Among the important earnings, earnings from insurance company Progressive (PGR) and construction support company Fastenal (FAST) are worse than expected.  Earnings from airline Delta (DAL) and snack and beverage company Pepsi (PEP) are slightly better than expected.
  • Buyouts are picking up.  Exxon Mobile (XOM) is buying Denbury (DEN).  However, the price offer for Denbury is a disappointment.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.
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Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1958, silver futures are at $24.48, and oil futures are at $75.75.

S&P 500 futures are trading at 4521 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 75 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

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You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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